Lorenzo operates a brushless car wash. Incoming cars are placed on a continuously moving automatic conveyor belt.
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Question:
Lorenzo's accountant wants to estimate the costs in December, when 9,650 cars are expected to be washed. She uses two different methods to estimate December costs, account analysis and high-low, with the number of car washes as the independent variable for both methods.
To develop the cost functions, you collected the following cost and activity data for June, July, and August:
June July August
Product cost
Soap, cloths, and supplies $6,060 $5,160 $6,840
Water $6,060 $5,160 $6,840
Car wash labor $28,120 $22,480 $28,920
Conveyor energy $13,200 $9,840 $12,360
Supervisor and cashier $3,100 $3,650 $3,650
Total $56,540 $46,290 $58,610
Car washes 10,100 8,600 11,400
For the analysis of accounts method, you developed estimates of the cost function parameters by analyzing actual costs in June. Their analysis revealed the following fixed cost components for each cost item:
Soap, cloths, and supplies $0
Water $0
Car wash labor $2,870
Power for transporter $2,090
Supervisor and cashier $3,100
Total $8,060
For the high-low method, you developed estimates of cost function parameters using data for July and August.
Part A:
Using account analysis, what is the accountant's estimate of total fixed costs for December?
Using account analysis, what is the accountant's estimate of variable costs per unit for December?
Part B:
Using the high-low method, what is the accountant's estimate of total fixed costs for December?
Using the high-low method, what is the accountant's estimate of total variable costs for December?
Related Book For
Cost Accounting A Managerial Emphasis
ISBN: 978-0133138443
7th Canadian Edition
Authors: Srikant M. Datar, Madhav V. Rajan, Charles T. Horngren, Louis Beaubien, Chris Graham
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